ITAT Delhi has held in DCIT Vs M.G.S. Hospitalities that if no proper enquiry has been made by the AO as regard to fair market value of goods and services then no disallowance u/s 40A(2)(b) is justified. It should be noted that section 40A(2) deals with the disallowance of expenditure paid to relatives or other persons as mentioned u/s 40A(2)(b), if such expenditure as claimed by assessee is found to be unreasonable considering the fair market value of goods and services involved in such expenditure and other factors.

I have find the follwoing judgment of Bombay High Court as an important one. In this case the exemption u/s 54F of Income Tax Act, 1961 to HUF was denied by AO on the ground that the residential property was purchased in the name of individuals instead of HUF. However the Tribunal held that since the property was purchased from the HUF Account and the purchase documents records the PAN of the HUF and the income from the property was also assessed in the hands of HUF, hence the exemption u/s 54F to HUF cannot be denied. The High Court accepted the version of Tribunal and thereby dismissed the appeal of revenue.

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